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If you own shares in Savills plc (LON:SVS) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.
Some stocks mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. Beta can be a useful tool to understand how much a stock is influenced by market risk (volatility). However, Warren Buffett said ‘volatility is far from synonymous with risk’ in his 2014 letter to investors. So, while useful, beta is not the only metric to consider. To use beta as an investor, you must first understand that the overall market has a beta of one. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.
Check out our latest analysis for Savills
What does SVS’s beta value mean to investors?
Savills has a five-year beta of 1. This is reasonably close to the market beta of 1, so the stock has in the past displayed similar levels of volatility to the overall market. While history does not always repeat, this may indicate that the stock price will continue to be exposed to market risk, albeit not overly so. Beta is worth considering, but it’s also important to consider whether Savills is growing earnings and revenue. You can take a look for yourself, below.
How does SVS’s size impact its beta?
Savills is a small company, but not tiny and little known. It has a market capitalisation of UK£1.0b, which means it would be on the radar of intstitutional investors. Small companies often have a high beta value because the stock price can move on relatively low capital flows. So it’s interesting to note that this stock historically has a beta value quite close to one.
What this means for you:
It is probable that there is a link between the share price of Savills and the broader market, since it has a beta value quite close to one. However, long term investors are generally well served by looking past market volatility and focussing on the underlying development of the business. If that’s your game, metrics such as revenue, earnings and cash flow will be more useful. In order to fully understand whether SVS is a good investment for you, we also need to consider important company-specific fundamentals such as Savills’s financial health and performance track record. I urge you to continue your research by taking a look at the following: